Written by

Dan Haugen, for the Sioux Falls Business Journal

As economic development officials consider ways to boost the amount of venture capital available in the state, angel investors with cash in the bank are trying to get the word out that they want to invest in South Dakota ideas and entrepreneurs.

The Brookings-based Enterprise Institute on Feb. 3 announced the launch of its seventh South Dakota angel fund. It’s a Black Hills regional fund that pools together more than $2 million of capital committed by individual investors in the community.

As with similar angel funds the nonprofit administers in Brookings, Watertown and Yankton, the Black Hills fund will make investing in South Dakota companies a priority, hoping to make a return not only for investors but also the state’s economy.

“Who knows. Every big company had to start somewhere,” said Don Roby, chairman of the network’s Kampeska Capital fund in Watertown.

The idea is that if investors’ money and mentorship can help an early stage company get to the next level, “then maybe we start seeing some more jobs come to town, maybe different types of jobs so we can diversify our employment base,” Roby said.

The Enterprise Institute was created in 2001 by Daktronics Inc. co-founders Duane Sander and Al Kurtenbach, who saw a need to provide more support for technology entrepreneurs in the state, whose needs are different from those of a conventional small-business owners.

“There was a gap in the service marketplace, specifically for high-growth potential companies in the state,” said Tim Weelborg, executive director of the Enterprise Institute since 2003.

The Enterprise Institute sought to fill those gaps, offering education and coaching programs to help entrepreneurs refine business plans and prepare investor presentations. After that, however, the challenge became finding investors to pitch.

South Dakota had, and still has, many wealthy individuals. The problem was how to find the handful of people who were willing to risk a chunk of their savings on an unproven startup company.

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“We needed a place for clients to go to get that type of money,” Weelborg said.

More than 10 years ago, the Enterprise Institute created a loose group called the Enterprise Angels, mostly successful businesspeople who had expressed interest in giving back to the next generation of South Dakota entrepreneurs. At quarterly meetings, the group heard pitches from two or three polished entrepreneurs seeking investors.

From these gatherings grew a concept to establish a network of “community angel funds,” in which several investors pool their money for shared investments, spreading some of the work and risk.

Angel investors increasingly have been banding together the past 15 years, according to the Angel Capital Association, a Kansas City-based trade association. It was aware of fewer than 100 angel groups in 2000 compared to almost 400 today.

“There are many motivations for an angel to invest, but for many of them, investing in a company close to home is important – not only to mentor and monitor these companies but also to help create great companies, jobs and innovations in their own communities,” said Marianne Hudson, the association’s executive director.

In 2006, the Enterprise Institute launched its first three angel funds, one aimed at investors in Brookings, another for Sioux Falls, and a third, statewide fund. The vast majority of those funds’ investments were in out-of-state companies, so when it launched three more funds in 2012 and 2013, it incorporated rules that encourage investment in South Dakota companies.

A typical fund receives 100 applications a year from entrepreneurs seeking capital. Of those, about 10 will earn a chance to make a presentation to the group, and only two of those might be successful in receiving an investment from the fund.

After hearing a pitch, investors vote on whether the shared fund should put money into the company. The newer funds require a super-majority to invest in out-of-state companies. South Dakota startups that have received funding from Enterprise Institute funds include Sioux Falls-based Peppermint Energy and GunUp.

With the addition of the Black Hills fund, the network now includes more than 120 individual investors who have committed to invest more than $7 million. The institute has offices in Brookings and Sioux Falls, and plans to open a third satellite office soon in the Black Hills.